10-Year Tenure Limit Proposed for Non Execs

The Australian Prudential Regulation Authority (APRA) has proposed a lifetime tenure limit of 10-years for non-executive directors at APRA-regulated entities, including banks, insurers, and superannuation trustees.  

First mentioned in a recently published discussion paper, which among various  corporate governance practices discussed, the APRA floats the concept of a potentially disruptive lifetime tenure limit.

Based on the proposal’s target acceptance by 2028, this proposal would affect NEDs who were appointed prior to 2018. Effectively forcing pre-2018 appointees to resign from the boards they serve on.

Aims of Tenure Limitation

This initiative aims to enhance governance by promoting board renewal and ensuring a diversity of perspectives within leadership teams. Under the proposal, directors who have served for 10 years would generally be expected to step down.

However, in exceptional circumstances, entities may request a two-year extension from APRA, subject to the regulator's approval. ​APRA's proposal aligns with contemporary governance benchmarks and literature suggesting that independent non-executive directors should ideally serve a maximum of nine to 12 years.

The regulator believes that setting a clear tenure limit balances the benefits and risks associated with long service, fostering an environment where boards continually evolve by incorporating new skills and innovative approaches to address emerging challenges. ​

References:

​Insurance News+8Grant Thornton Australia+8LinkedIn+8

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APRAArnold Bloch Leibler